michaelhal414
03.06.2021 •
Business
The federal budget is balanced and the economy is on the upward-sloping portion of the Laffer curve. Then, tax rates are cut and government purchases are increased. Is a budget deficit inevitable? Question 18 options: No, because a cut in tax rates (on the upward-sloping portion of the Laffer curve) increases tax revenues, and if the increase in tax revenues equals the increase in government purchases there is no deficit. Yes, because a cut in tax rates (on the upward-sloping portion of the Laffer curve) lowers tax revenues. No, because a cut in tax rates (on the upward-sloping portion of the Laffer curve) decreases tax revenues, and if the decrease in tax revenues is less than the increase in government purchases there is no deficit. Yes, because a cut in tax rates (on the upward-sloping portion of the Laffer curve) raises interest rates, and higher interest rates discourage investment spending.
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